April 15, 2012:

FAIRBANKS — A decrease in jet fuel sales to Anchorage caused by competition from lower-priced refineries was a secondary factor in Flint Hills Resources’ recent decision to shutdown production at one of its crude refining units in North Pole, according to a company spokesperson. Flint Hills’ competitors are able to sell jet fuel to Ted Stevens International Airport at cheaper rates because it costs them less to produce, said Jeff Cook, the company’s spokesman in Fairbanks.

“We cannot economically compete with refiners who can bring jet fuel into Anchorage refined at other locations with A) cheaper crude, and B) cheaper energy,” Cook said.  Flint Hills sent 36,000 tank cars filled with 800 million gallons of product to Anchorage in its peak year of 2003, according to Alaska Railroad officials. Jet fuel accounted for 69 percent of the product. Shipments have steadily dwindled since then to the current rate of 17,000 tank cars a year, 78 percent of them filled with jet fuel. The railroad anticipates the refining unit shutdown to further decrease volume. “We’re expecting it to be about 320 million gallons for 2012,” railroad spokeswoman Wendy Lindskoog said. “This will have a big effect on our revenue.”

Flint Hills’ announcement last week that it was shutting down production at one of its two remaining operational units focused on the overall economics of the refinery’s operation but didn’t specifically discuss the Anchorage jet fuel market. About 35 to 40 employees will be laid off during the next five months as the refinery shuts down the processing unit. Flint Hills, which purchased the refinery in April 2004, had previously idled another of its three crude processing units. The remaining unit will continue producing jet fuel, gasoline, asphalt and some specialty fuels.

Cook stressed that the loss of jet fuel sales is not the primary reason for the shutdown of a second refining unit, however. “Indirectly, I guess you could say yes, we can’t compete with imports into Anchorage, that increased imports have hurt us, but the real driver is the high cost of energy. The reason we’re closing Crude Unit One is to reduce our energy costs and be more efficient. And to adjust to demand,” Cook said. The company news release said the North Pole refinery faces a competitive disadvantage. Refining crude oil into useable product consumes large amounts of energy — measured in British Thermal Units, or Btu — and the cost of that energy helps determines the price the refined product is sold at. Refineries that run on natural gas pay around $2 per million Btu, while Flint Hills pays $20 to $21 per million Btu because it does not have an inexpensive and ready supply of natural gas at the refinery and must instead burn oil, Cook said.

“It’s the result of the differential between natural gas prices and crude prices, particularly NS (North Slope) crude, which is trading at a premium,” Cook said in a subsequent interview. Cook also said he’s frustrated that “all the news media and even a lot of the legislators” quote the price of the benchmark West Texas Intermediate crude when discussing oil prices instead of quoting Alaska prices. The North Pole refinery has only one source from which to buy crude oil — the North Slope.

“Because for the last year we’ve been trading $17 to as high as $30 per barrel higher than West Texas Intermediate,” Cook said.

By Newsminer.com